HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.

Hong Kong Chinese Women’s Club College

BAFS Accounting
Frank Wood’s Accounting, Ch 4 & 5
Books of Original Entry and Ledgers: Introduction

Accounting Cycle
The records in the books of
original entry will next be
posted in the accounts by
Business transactions means of double entry.
are first recorded in the Preparing
books of original entry. adjusting
Balance off
entries
accounts

Keeping source
documents for Books of Original Trial Financial
business Entry Ledgers Statements
Balance
transactions
Income Statement
Source (includes nominal accounts)
Documents Classification Posting Balance Sheet
(providing (includes real accounts)
evidence of
transactions)

Purchases Trade Receivable Ledger (Debtors Ledger or Sales Ledger)

Purchases keep trade debtors’ accounts (personal accounts)
invoice Credit purchases Journal
Trade debtor - A Trade debtor - B Trade debtor - C

Sales Sales
invoice Credit sales Journal
Trade Payable Ledger (Creditors Ledger or Purchases Ledger)
keep trade creditors’ accounts (personal accounts)
Returns
Debit Trade creditor - A Trade creditor - B Trade creditor - C
Outwards
note
Returns outwards Journal

General Ledger
keep all other accounts (impersonal accounts)
Credit Returns
note Returns inwards Inwards Purchases Rent Furniture
Journal

Sales Returns inwards Returns outwards

Pay-in-slips Cash
Cheque Cash and bank Book*
counterfoil Receipts and payments
Capital Interest income Drawings

General
Invoice
Journal Other debtors Other creditors Motor van
Contracts Other transactions

Cash Book* (To keep cash and bank accounts)

*Cash Book serves the function of the books of original entry and ledger
Cash Book
as it includes the cash and bank accounts.
Cash Bank Cash Bank

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.2
Functions of books of original entry and ledgers

(1) Reasons for keeping both books of original entry and ledgers:

(i) As these two sets of records are normally prepared by different staff, this segregation of duties can facilitate
cross-checking which can be easily performed to reduce error. Therefore, the accuracy of bookkeeping will be
enhanced.

(ii) The classification of transactions can facilitate the ____________ to the accounts in different ledgers.

(2) Reasons for keeping separate ledgers:

(i) This allows division of labour among different bookkeepers and increases work efficiency.

(ii) This allows more efficient control over the debtors’ and creditors’ accounts as the business can keep
close track of debtors’ and creditors’ accounts to ensure prompt collection and payment.
Class Practice 1

Business transactions Classification Books of original entry Posting Ledgers

Business transactions Books of Ledgers

original Trade receivable Trade payable General
entry ledger ledger ledger
1. Bought goods on credit from Purchases Elite Purchases
Elite for $4,000. Journal 4000 4000

2. Sold goods on credit to Bay for Sales Journal Bay Sales

$8,000. 8000 8000

3. Sold goods to Hung for $7,000 Cash Book Cash Sales

in cash. 7000 7000

4. Bought goods for $2,000 from Cash Book Bank Purchase

Shun by cheque. 2000 2000

5. Goods of $4,500 were returned Returns Bay Returns

from Bay. Inwards 4500 Inwards
Journal 4500

6. Returned goods to Elite for Return Elite Return

$500. Outwards 500 Outwards
Journal 500

7. Received $1,000 cash from Bay Cash Book Bay Cash

for the amount owed. 1000 1000

8. Bought motor vehicle from General Motor Chan

Chan for $11,000 on credit. Journal Vehicle
11000 11000

9. Paid $7,200 for rent in cash. Cash Book Rent Cash

7200 7200

10. The owner put in $22,000 Cash Book Bank Capital

into the business bank account. 22000 22000

11. The owner bought in furniture General Capital Furniture

of $1,800 for business use. Journal 1800 1800

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.3

Hong Kong Chinese Women’s Club College

BAFS Accounting
Frank Wood’s Accounting, Ch 4 & 5
Books of Original Entry and Ledgers: Purchases Journal and Sales Journal

Accounting Cycle
The records in the books of
original entry will next be
posted in the accounts by
Business transactions means of double entry.
are first recorded in the Preparing
books of original entry. adjusting
Balance off
entries
accounts

Keeping source
documents for Books of Original Trial Financial
business Entry Ledgers Statements
Balance
transactions
Income Statement
Source (includes nominal accounts)
Documents Classification Posting Balance Sheet
(providing (includes real accounts)
evidence of
transactions)

Purchases Purchases Trade Receivable Ledger (Debtors Ledger or Sales Ledger)

invoice Credit purchases Journal keep trade debtors’ accounts (personal accounts)

Trade debtor - A Trade debtor - B Trade debtor - C

Sales Sales
invoice Credit sales Journal
Trade Payable Ledger (Creditors Ledger or Purchases Ledger)
keep trade creditors’ accounts (personal accounts)
Returns
Debit Trade creditor - A Trade creditor - B Trade creditor - C
Outwards
note
Returns outwards Journal

General Ledger
keep all other accounts (impersonal accounts)
Credit Returns
note Returns inwards Inwards Purchases Rent Furniture
Journal

Sales Returns inwards Returns outwards

Pay-in-slips Cash
Cheque Cash and bank Book*
counterfoil Receipts and payments Capital Interest income Drawings

General
Invoice Other debtors Other creditors Motor van
Journal
Contracts Other transactions

Cash Book* (To keep cash and bank accounts)

*Cash Book serves the function of the books of original entry and ledger Cash Book
as it includes the cash and bank accounts. Cash Bank Cash Bank

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.4

1. Goods purchases/ sold on credit or in cash

Classification
Posting
Business Books of
original entry Ledgers
transactions

Source documents:
It is kept as evidence
of transaction.

1. Cash Purchases
Goods Cash Purchases
purchased with Receipts Cash X X
an intention of Book
resale.
2. Credit purchases
Purchases Trade Creditor
Purchase Purchase X X
Invoice Journal

3. Cash sales
Cash Sales
Receipts Cash X X
Book
Goods sold
4. Credit sales
Sales Trade Debtor
Sales Sales X X
Invoice Journal

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.5

2. Credit Purchases and Credit Sales

Procedures for making a credit purchase/ sales and example of invoice

Buyer Seller

Ladies Fashion Trendy Warehouse

1. sent a purchase order

2. sent the goods together

with a sales invoice (source
document)
From buyer’s perspective, it From seller’s perspective, it
is a purchase invoice is a sales invoice

INVOICE
Trendy Warehouse Date: 23 Nov 2015
23 Happy Street, Kowloon Invoice No. 10805
Tel: 2345-6789 Customer: Ladies Fashion
3 Style Street, Hong Kong

Description Qty Unit price Discount Total

$ % $
Dress (#D-46) 45 80 10 3,600.00
Trousers (#T-89) 40 60 10 2,400.00
Original Amount 5,000.00
Discount Amount 500.00
Net Amount 4,500.00

Notes: 1. Payment terms: 45 days’ credit

2. 5% cash discount if paid within 10 days
3. 2% interest per month will be charged on overdue accounts.

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.6
3. The purchases journal and the corresponding ledgers

➢ Uses of purchases journal:

1. The purchases journal is a book of original / double entry. Purchases Journal is also known as
2. It records all the credit purchases for each period. Purchases Day Book

➢ Steps in recording credit purchases

1. After receiving the purchase invoice, write up the purchases information in the purchases journal
2. (a) Post each credit purchase separately to the trade creditor’s account in the trade payable ledger every
day when it occurs (i.e.: Cr. Trade Creditors)
(b) Post the total of the purchases journal to the purchases account in the general ledger at the end of each
month (i.e.: Dr. Purchases – Total)

Illustration 1
2022 S4 Toy Company
Mar 4 Bought 2 units of goods from A. Leung on credit at @$1,200 (purchase invoice no.10457)
13 Bought goods from Tommy for $2,300 in cash. {not in purchases journal}
22 Bought one of unit of goods from Telax on credit for $4,000, trade discount of $200 was given.
(purchase invoice no. A12345)
30 Bought 3 unit of goods from A. Leung on credit at @700, trade discount at a total of $100 was
given. (purchase invoice no. 56934)
- Credit purchases to Purchases Journal
- Cash purchases to Cash Book
S4 Toy Company
Purchases Journal
Date Details Invoice No. Amount ($)
2022
Mar 4 A Leung; 2 units @$1,200 10457 2400
Mar22 Telax; 1 unit @$4000, less $200 trade discount A12345 3800
Mar30 A Leung: 3 units@ $700, less $100 trade discount 56934 2000
Mar 31 Total to credit purchases A/C 8200

Cash Book - Cash

2022 $ 2022 $
Mar 13 Purchases 2300

Trade Payable Ledger

A. Leung
2022 $ 2022 $
Mar 4 Purchases 2400
Mar 30 Purchases 2000

Telax
2022 $ 2022 $
Mar22 Purchases 3800

General Ledger
Purchases
2022 $ 2022 $
Mar 13 Cash 2300

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.7

Exercise 1

2022 S4 Toy Company

April 5 Bought 2 units of goods from ABC on credit at $1,400 each. (purchase invoice no.12987)
12 Bought one unit of goods from DEF for $3,300 by cheque.
20 Bought one unit of goods from Cathy on credit for $5,000, trade discount of 10% was given.
(purchase invoice no. V78453)
30 Bought 3 units of goods from ABC on credit at $1,200 each, trade discount at a total of $72
was given. (purchase invoice no. D45786)

Required, in S4 Toy Company:

(a) Write up the purchases journal and cash book for the month.
(b) Post the entries to the trade creditors’ accounts in the trade payables ledger
(c) Prepare purchases account in the General Ledger.

Answers to Exercise 1
(a)
S4 Toy Company
Purchases Journal
Date Details Invoice No. Amount ($)
2022
April 5 ABC: 2 units of goods (2x$1,400) 12987 2,800
20 Cathy: 1 unit of goods ($5,000x90%) V8453 4,500
30 ABC: 3units of goods (3x$1,200-$72) D45786 3,528

30 Total for the month 10,828

Cash Book - Bank

2022 $ 2022 $
April 5 Purchases 3,300

(b)
Trade Payable Ledger
ABC
2022 $ 2022 $
April 5 Purchases 2,800
30 Purchases 3,528

Cathy
2022 $ 2022 $
April 20 Purchases 4,500

(c)
General Ledger
Purchases
2022 $ 2022 $
April 5 Bank 3,300
30 Total 10,828

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.8

Exercise 2
2022 AV Company
May 7 Bought 4 monitors (goods) from Peter on credit at $2,400 each. (purchase invoice
no.11654)
15 Bought 1 monitor (goods) from Chan for $500 by cheque.
21 Bought 2 monitors (goods) from Samuel on credit at a total of $3,200, trade discount
of 5% was given. (purchase invoice no. R2345)
24 The owner withdrew one monitor (goods), purchased on 7 May, for his own use.
28 Bought 3 monitors (goods) from Peter on credit at $800 each, trade discount at a total
of $100 was given. (purchase invoice no. K5656)
Required, in AV Company:
(a) Write up the purchases journal and cash book for the month.
(b) Post the entries to the trade creditors’ accounts in the trade payables ledger
(c) Prepare purchases account in the General Ledger.

Answers to Exercise 2
(a)
AV Company
Purchases Journal
Date Details Invoice No. Amount ($)
2022
May 7 Peter: 4 monitors @$2400 (4x$2,400) 11654 9,600
21 Samuel: 2 monitors ($3,200x95%) R2345 3,040
28 Peter: 3 monitors @$800 (3x$800-$100) K5656 2,300

31 Total for the month 14,940

Cash Book - Bank

2022 $ 2022 $
May 15 Purchases 500

(b)
Trade Payable Ledger
Peter
2022 $ 2022 $
May 7 Purchases 9,600
28 Purchases 2,300

Samuel
2022 $ 2022 $
May 21 Purchases 3,040

(c)
General Ledger
Purchases
2022 $ 2022 $
May 15 Bank 500 May 24 Drawings 2,400
31 Total 14,940

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.9

Exercise 3

The following transactions relate to the books of Yoyo Company:

Date Transaction
2022
Oct 12 Goods with a list price $5,800 were purchased from Swiss Company on credit at 10%
trade discounts. Cash discounts of 5% would be given if the outstanding amount was
settled in 7 days.
Oct 18 A cheque was sent to Swiss Company to settle the outstanding amount.
Oct 20 Goods with a list price $4,300 were purchased from Swiss Company on credit at 6%
trade discount. Cash discounts of 5% would be given if the outstanding amount was
settled in 7 days.
Oct 29 A cheque was sent to Swiss Company to settle the outstanding amount.

Required, in Yoyo Company:

(a) Write up the purchases journal for the month of October 2022.
(b) Post the entries to the trade creditors’ accounts in the trade payables ledger
(c) Prepare purchases account and the discount received account in the General Ledger.

Answers to Exercise 3
(a)
Yoyo Company
Purchases Journal
Date Details Amount ($)
2022
Oct 12 Swiss Company ($5,800x90%) 5,220
20 Swiss Company ($4,300x94%) 4,042
31 Total transferred to purchases account 9,262

Trade Payable Ledger

Swiss Company
2022 $ 2022 $
Oct 18 Bank ($5,220x95%) 4,959 Oct 12 Purchases 5,220
Discount received 261 20 Purchases 4,042
29 Bank 4,042

General Ledger

Discounts Received
2022 $ 2022 $
Oct 18 Swiss Company 261

Purchases
2022 $ 2022 $
Oct 31 Total 9,262

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.10

Exercise 4
2022 Play Limited
Oct 5 Sold 3 units of goods to Alan on credit at $1,000 each. (sales invoice no.10198)
11 Sold 2 units of goods to Bay at a total of $2,300 by cheque.
14 Sold 2 units of goods to Cathy on credit at $2,100@, trade discount of 10% was given.
(sales invoice no. 12321)
23 Sold 4 units of goods to Alan on credit at $3,200@, trade discount of 4% was given.
(sales invoice no. S3434)

Required, in Play Limited:

(a) Write up the sales journal and cash book for the month.
(b) Post the entries to the trade debtors’ accounts in the trade receivables ledger
(c) Prepare sales account in the General Ledger.

Answers to Exercise 4
(a)
Play Limited
Sales Journal
Date Details Invoice No. Amount ($)
2022
Oct 5 Alan: 3 units of goods, @$1,000 (3x$1,000) 10198 3,000
14 Cathy: 2 units of goods, @$2,100 ($2,100x2x90%) 12321 3,780
23 Alan: 4 units of goods, @$3,200 (4x$3,200x96%) S3434 12,288

31 Total for the month 19,068

Cash Book - Bank

2022 $ 2022 $
Oct 11 Sales 2,300

(b)
Trade Receivables Ledger
Alan
2022 $ 2022 $
Oct 5 Sales 3,000
23 Sales 12,288

Cathy
2022 $ 2022 $
Oct 14 Sales 3,780

(c)
General Ledger
Sales
2022 $ 2022 $
Oct 11 Bank 2,300
31 Total 19,068

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.11

Exercise 5
Yummy Company is a sole trader. She made the following sales in March 2022:

Mar 6 Sales of 80 units of goods at $80 each, of which 50% were made on credit to Luk.
The others were sold by cash.
Mar 8 Sales of 95 units of goods at $85 each on credit to Chan.
Mar 15 Sales of 10 units of goods at $900 each, of which 3 pieces were made on credit to
Luk and the remaining was made by cash.
Mar 22 Credit sales of 40 units of goods at $150 each to Chan. A 5% trade discount was to
be deducted.

Required, in Yummy Company:

(a) Write up the sales journal for the month.
(b) Post the entries to the trade debtors’ accounts in the trade receivables ledger
(c) Prepare sales account in the General Ledger.

Answers to Exercise 5
(a)
Yummy Company
Sales Journal
Date Details Amount ($)
2022
Mar 6 Luk: 40 units of goods, @$80 ($80x40) 3,200
8 Chan: 95 units of goods, @$85 ($85x95) 8,075
15 Luk: 3 units of goods, @$900 (3x$900) 2,700
22 Chan: 40 units of goods, @$150 (40x$150x95%) 5,700

31 Total for the month 19,675

(b)
Trade Receivables Ledger
Luk
2022 $ 2022 $
Mar 6 Sales 3,200
15 Sales 2,700

Chan
2022 $ 2022 $
Mar 8 Sales 8,075
22 Sales 5,700

(c)
General Ledger
Sales
2022 $ 2022 $
Mar 6 Cash (40x$80) 3,200
15 Cash (7x$900) 6,300
31 Total 19,675

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.12

Exercise 6

The following transactions relate to the books of Smart Company:

Date Transaction
2022
June 10 Sales invoice (no. 76576) was issued for credit sales to Lion Ltd. The list price was
$29,000, trade discounts of 10% was to be given. Cash discounts of 4% would be given if
the invoice could be settled within 30 days.
June 17 Lion Ltd. settled his account by cheque.
June 19 Sales invoice (no. 87980) was issued for credit sales to Lion Ltd. The list price was
$14,500, trade discounts of 10% was to be given. Cash discounts of 6% would be given if
the invoice could be settled within 7 days.
June 29 Lion Ltd. settled his account by cheque.

Required, in Smart Company:

(a) Write up the sales journal for the month of June 2022.
(b) Post the entries to the trade debtors’ accounts in the trade receivables ledger
(c) Prepare sales account and the discount allowed account in the General Ledger.

Answers to Exercise 6
(a)
Smart Company
Sales Journal
Date Details Amount ($)
2022
June 10 Lion Ltd.($29,000x90%) 26,100
19 Lion Ltd. ($14,500x90%) 13,050
30 Total transferred to sales account 39,150

Trade Receivables Ledger

Lion Ltd.
2022 $ 2022 $
June 10 Sales 26,100 June 17 Bank ($26,100x96%) 25,056
19 Sales 13,050 Discount allowed 1,044
29 Bank 13,050

General Ledger

Discounts Allowed
2022 $ 2022 $
June 17 Lion Ltd. 1,044

Sales
2022 $ 2022 $
June 30 Total 39,150

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.13

Hong Kong Chinese Women’s Club College

BAFS Accounting
Frank Wood’s Accounting, Ch 4 & 5
Books of Original Entry and Ledgers: Returns Inwards and Returns Outwards Journal

Accounting Cycle
The records in the books of
original entry will next be
posted in the accounts by
Business transactions means of double entry.
are first recorded in the Preparing
books of original entry. adjusting
Balance off
accounts entries

Keeping source
documents for Books of Original Trial Financial
Entry Ledgers Statements
business Balance
transactions
Income Statement
Source (includes nominal
accounts)
Documents Classification Posting Balance Sheet
(providing (includes real
accounts)
evidence of
transactions)
Trade Receivable Ledger (Debtors Ledger or Sales Ledger)
Purchases Purchases keep trade debtors’ accounts (personal accounts)
invoice Credit purchases Journal
Trade debtor - A Trade debtor - B Trade debtor - C

Sales Sales
invoice Credit sales Journal
Trade Payable Ledger (Creditors Ledger or Purchases Ledger)
keep trade creditors’ accounts (personal accounts)

Returns Trade creditor - A Trade creditor - B Trade creditor - C

Debit
note Outwards
Returns outwards Journal

General Ledger
keep all other accounts (impersonal accounts)
Credit Returns
note Returns inwards Inwards Purchases Rent Furniture
Journal

Sales Returns inwards Returns outwards

Pay-in-slips Cash
Cheque Cash and bank Book*
counterfoil Receipts and payments
Capital Interest income Drawings

Invoice General
Contracts Other transactions Journal Other debtors Other creditors Motor van

Cash Book* (To keep cash and bank accounts)

*Cash Book serves the function of the books of original entry and ledger Cash Book
as it includes the cash and bank accounts. Cash Bank Cash Bank

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.14

1. Goods returned to suppliers / from customers

Classification
Posting
Business Books of
original entry Ledgers
transactions

Source documents:
It is kept as evidence
of transaction.

Goods returned to Returns outwards Creditor

suppliers Debit Returns outwards X X
Note journal

Returns inwards Debtor

Goods returned Credit Returns inwards X X
from customers journal
Note

➢ Use of returns journal

 The return outwards journal and return inwards journal are books of original entry.
 It records all the return outwards (goods returned to supplier) and return inwards (goods returned from customer) for each
period)
(*returns of non-inventory items are not recorded in the returns journal.)

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.15

2. Source documents for goods returned

Ladies Fashion
3 Style Street, Hong Kong
Debit Note
Return Outwards: Note no.: DN10/01 Return Inwards:
Debit note is issued Date: 30 Nov 2015 Debit note is
and sent to supplier To: Trendy Warehouse received from
for goods returned. 23 Happy Street, Kowloon customer for
Description Qty Unit Total goods returned.

$ $
Dress (#D-46) 5 80 400
Less: 10% Discounts 40
360
Damaged items returned to the supplier

Buyer 1. Returned goods and sent a debt note giving Seller

details for a claim for a reduction in the Trendy Warehouse
amount owed.

2. sent a credit note showing the amount of

reduction given.

Trendy Warehouse
23 Happy Street, Kowloon
Credit Note Note no.: CN11/05
To: Ladies Fashion Date: 3 Dec 2015
3 Style Street, Hong Kong
Credit note is received Description Qty Unit Total Credit note is issued
from the supplier for the and sent to customer
acceptance of goods $ $ for the acceptance
returned. of goods returned.
Dress (#D-46) 5 80 400
Less: 10% Discounts 40
360
Damaged items returned from the customer

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.16

3. Returns outwards journal and the corresponding ledgers

➢ Steps in recording returns outwards

1. Write up the return outwards journal according to the debit note issued to supplier or credit note received from supplier.
2. (a) Post each returns outwards separately to the debit side of the trade creditor’s account in the trade payable
ledger every day when it occurs (i.e. Dr. Trade Creditors)
(b) Post the total of the return outwards journal to the return outwards account in the general ledger at the end of
each month. (i.e. Cr. Return Outwards – Total)

Illustration 1
2022
May 1 Purchased 2 units of goods on credit from Kitty at $2,300 each. 10% trade discount will be deducted.
4 Purchased 3 units of goods on credit from Joyce at $1,200 each.
13 Returned 1 unit of goods to Kitty. (debit note #1234 is issued)
17 Returned 2 units of goods to Joyce. (debit note #3498 is issued)

Original Entry

Ladies Fashion
Return Outwards Journal
Date Details Invoice No. Amount ($)
2020
May 13 Kitty: 1 unit @2300, 10% trade discount 1234 2070
May 17 Joyce: 2 units @1200 3498 2400
May 31 Total of returns outwards 4470

Double Entry - Ledger

Trade Payables Ledger

Kitty
2022 $ 2022 $
May 13 Returns outwards 2070 May 1 Purchases 4140

Joyce
2022 $ 2022 $
May 17 Returns outwards 2400 May 4 Purchases 3600

General Ledger

Return outwards
2022 $ 2022 $
May 31 Total 4470

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.17

4. Return Inwards journal and corresponding ledgers

➢ Steps in recording returns inwards

1. Write up the return inwards journal according to the credit note issued to customer or debit notes received from buyer
2. (a) Post each returns inwards separately to the credit side of the trade debtor’s account in the trade receivable
ledger every day when it occurs (i.e. Cr. Trade Debtor)
(b) Post the total of the return inwards journal to the return inwards account in the general ledger at the end of each
month. (i.e. Dr. Return Inwards – Total)

Illustration 2
2015
July 3 Sold 2 units of goods on credit to Peace at $1,260 each. 10% trade discount will be deducted.
7 Sold 3 units of goods on credit to Hat at $800 each. 5% trade discount will be deducted.
10 Peace returned 1 unit of goods to us. (credit note #5643 is issued)
17 Hat returned 2 units of goods to us. (credit note #2321 is issued)

Original Entry

Ladies Fashion
Return Inwards Journal
Date Details Invoice No. Amount ($)
2015
July 10 Peace: 1unit @1260, 10% trade discount 5643 1134
July 17 Hat: 2units @760 2321 1520
July 31 Total to returns inwards account 2654

Double Entry – Ledger

Trade Debtor Ledger

Peace
2015 $ 2015 $
July3 Sales 2268 July 10 Return inwards 1134

Hat
2015 $ 2015 $
July 7 Sales 2280 Jul17 Return inwards 1520

General Ledger

Returns inwards
2015 $ 2015 $
July31 Total 2654

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.18

Exercise 1

The following information is about Circle Ltd., a credit customer of Desk Ltd.:
2022
May 1 Balance owed by Circle Ltd. at $3,750.
8 Desk Ltd. sold goods with a list price of $3,800 on credit to Circle Ltd., less a 20% trade discount.
12 Circle Ltd. returned some goods purchased on 8 May to us. The list price of the returned goods
amounted to $1,100.
13 Desk Ltd. sold $900 goods in cash to Circle Ltd.
17 Desk Ltd. received a cheque of $1,110 from Circle Ltd., being settlement of his account at $1,200.
24 Desk Ltd. sold goods with a list price of $2,600 on credit to Circle Ltd., less a 25% trade discount.
28 Circle Ltd. returned half of the goods purchased on 24 May to us.

Required for Desk Ltd.:

(a) Write up the sales journal and returns inwards journal to record the above transactions. (3 marks)
(b) Prepare Circle Ltd.’s account for May 2022 (4 marks)
(c) Show the sales account and the returns inwards account in the general ledger. (2 marks)

Answers to Ex.1
(a)
Sales Day Book
Date Particulars Details Amount
2022 $ $
May 8 Circle Ltd. ($3,800 x 80%) 3,040 ½
24 Circle Ltd. ($2,600 x 75%) 1,950 ½
May 31 Total transferred to sales account 4,990 ½

Returns Inwards Day Book

Details Amount
2022 $ $
May 12 Circle Ltd. ($1,100 x 80%) 880 ½
28 Circle Ltd. ($1,950x50%) 975 ½
Mar 31 Total transferred to Returns inwards account 1,855 ½
(3)
(b)
Trade receivables ledger
Circle Ltd.
2022 $ 2014 $
½ May 1 Balance b/d 3,750 May 12 Returns inwards 880 ½
½ 8 Sales 3,040 17 Bank 1,110 ½
½ 24 Sales 1,950 17 Discount allowed 90 ½
28 Returns inwards 975 ½
31 Balance c/d 5,685 ½
8,740 8,740
(4)
(c)
General Ledger
Sales
2022 $ 2022 $
May 13 Cash 900 ½
31 Total 4,990 ½

Returns inwards
2022 $ 2022 $
1 May 31 Total 1,855
(2)
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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.19
Exercise 2

The following transactions relate to the books of Stoke Ltd. for the month of June 2022:
2022
June 1 Balance owed to our supplier, Mr. Real $2,900.
4 Mr. Real supplied goods to Stoke Ltd. with a list price of $9,000 on credit, less a 20% trade
discount.
9 Stoke Ltd. returned some of the goods purchased on 4 June. List price of those goods amounted
to $800.
13 Stoke Ltd. settled half the amount owed to Mr. Real by cheque.
21 Stoke Ltd. purchased goods at a list price of $4,700 on credit from Mr. Real. 20% trade
discount was to be given.
23 Stoke Ltd. returned 5% of goods purchased on 21 June to Mr. Real.
26 Stoke Ltd. paid a cheque to Mr. Real for full settlement of the account balance, with $600
discount received.
29 Stoke Ltd. purchased goods with a list price of $2,780 in cash, less a 10% trade discount.
Required for Stoke Ltd.:
(a) Write up the purchases journal and returns outwards journal for June 2022. (3 marks)
(b) Prepare Mr. Real’s account in the trade payables ledger. (4 marks)
(c) Show the purchases account and returns outwards account in the general ledger. (2 marks)

Answers to Ex. 2
(a)
Purchases Day Book
Date Particulars Details Amount
2022 $ $
June 4 Mr. Real ($9,000 x 80%) 7,200 ½
21 Mr. Real ($4,700 x 80%) 3,760 ½
June 30 Total transferred to Purchases account 10,960 ½

Returns Outwards Day Book

Details Amount
2022 $ $
June 9 Mr. Real ($800 x 80%) 640 ½
23 Mr. Real ($3,760x5%) 188 ½
June 30 Total transferred to Returns Outwards account 828 ½
(3)
(b)
Trade payables ledger

Mr. Real
2022 $ 2022 $
½ June 9 Returns outwards 640 June 1 Balance b/d 2,900 ½
½ 13 Bank 4,730 4 Purchases 7,200 ½
½ 23 Returns outwards 188 21 Purchases 3,760 ½
½ 26 Discount received 600
½ Bank 7,702

13,860 13,860
(4)

p.19
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.20
(c)
General Ledger
Purchases
2022 $ 2022 $
½ June 29 Cash 2,502
½ 30 Total 10,960

Returns outwards
2022 $ 2022 $
June 30 Total 828 1

(2)

Exercise 3

The following transactions relate to the books of Bottle Company for the month of May 2022:

2022
May 2 Purchased 7 units of goods on credit from Orange at a list of $2,200 each, less 10% trade discount.
4 Sold goods on credit to Green at a list price of $5,600, less 15% trade discount.
8 Returned 2 units of goods purchased on 2 May to Orange.
9 Green returned goods to us at a list of price of $1,100.
12 Paid a cheque of $6,800 to Orange, for the settlement of $7,000 in his account.
17 Received a cheque of $1,500 from Green, $220 being discount allowed for him.
20 Purchased 3 units of goods on credit from Orange at a list of $2,100 each, less 10% trade discount.
22 Sold goods in cash at $4,000 to Green, less 15% trade discount.
28 Sold goods on credit to Green at a list price of $2,900, less 15% trade discount.

Required for Bottle Company:

(a) Write up the purchases journal, returns outwards journal, sales journal and returns inwards for May 2022. (3 marks)
(b) Prepare Orange’s account in the trade payables ledger. (3 marks)
(c) Prepare Green’s account in the trade receivables ledger. (3 marks)

Answer to Ex. 3
(a)

Purchases Day Book

Date Particulars Details Amount
2022 $ $
May 2 Orange ($2,200 x 7 x 90%) 13,860 ½
20 Orange ($2,100 x 3 x 90%) 5,670 ½
May 31 Total transferred to Purchases account 19,530 ½

Sales Day Book

Date Particulars Details Amount
2022 $ $
May 4 Green ($5,600 x 85%) 4,760 ½
28 Green ($2,900 x 85%) 2,465 ½
May 31 Total transferred to sales account 7,225 ½

Returns Outwards Day Book

Details Amount
p.20
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.21
2022 $ $
May 8 Orange ($13,860 x 2/ 7) 3,960 ½
May 31 Total transferred to Returns Outwards account 3,960 ½

Returns Inwards Day Book

Details Amount
2022 $ $
May 9 Green ($1,100 x 85%) 935 ½
May 31 Total transferred to Returns inwards account 935 ½
(5)
(b)
Trade payables ledger

Orange
2022 $ 2022 $
½ May 8 Returns outwards 3,960 May 2 Purchases 13,860 ½
½ 12 Discount received 200 20 Purchases 5,670 ½
½ Bank 6,800
½ 31 Balance c/d 8,570
19,530 19,530
(3)

(c)
Trade receivables ledger

Green
2022 $ 2022 $
½ May 4 Sales 4,760 May 9 Returns inwards 935 ½
½ 28 Sales 2,465 17 Discount allowed 220 ½
Bank 1,500 ½
31 Balance c/d 4,570 ½
7,225 7,225
(3)

p.21
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.22

Hong Kong Chinese Women’s Club College

BAFS Accounting
Books of Original Entry and Ledgers: Cash Book

Accounting Cycle
The records in the books of
original entry will next be
posted in the accounts by
Business transactions means of double entry.
are first recorded in the Preparing
books of original entry. adjusting
Balance off
entries
accounts

Keeping source
documents for Books of Original Trial Financial
Entry Ledgers Statements
business Balance
transactions
Income Statement
Source (includes nominal accounts)
Documents Classification Posting Balance Sheet
(providing (includes real accounts)
evidence of
transactions)

Purchases Purchases Trade Receivable Ledger (Debtors Ledger or Sales Ledger)

invoice Credit purchases Journal keep trade debtors’ accounts (personal accounts)

Trade debtor - A Trade debtor - B Trade debtor - C

Sales Sales
invoice Credit sales Journal
Trade Payable Ledger (Creditors Ledger or Purchases Ledger)
keep trade creditors’ accounts (personal accounts)

Returns
Debit Trade creditor - A Trade creditor - B Trade creditor - C
Outwards
note
Returns outwards Journal

General Ledger
keep all other accounts (impersonal accounts)
Credit Returns
note Returns inwards Inwards Purchases Rent Furniture
Journal

Sales Returns inwards Returns outwards

Pay-in-slips Cash
Cheque Cash and bank Book*
counterfoil Receipts and payments Capital Interest income Drawings

General
Invoice Other debtors Other creditors Motor van
Journal
Contracts Other transactions

Cash Book* (To keep cash and bank accounts)

*Cash Book serves the function of the books of Cash Book
Cash Bank Cash Bank
original entry and ledger as it includes the cash
and bank accounts and discounts column.
p.22
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.23

1. Cash Book
- A cash book records _cash_ and _cheque_ transaction
-The person who manages the cash book is called a _cashier_.
-There are two types of cash book:
(i) _two_ - column cash book; and
(ii) _three_ - column cash book

The Cash book and the corresponding ledgers

Classification
Posting
Business Books of
original entry Ledgers
transactions

Source documents:
It is kept as evidence
of transaction. No double entry

(Two-column or Three column)

Cash Book
Discount Cash Bank Discount Cash Bank

- Cash or cheque receipts - Cash or cheque payment

- having double entries - having double entries

p.23
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.24

2. Preparation of the Two-column cash book

Illustration 1: Write up a two column cash book of T. Tiger form the following transactions.

Double entries
2022 $ Dr. Cr.
Nov 1 Balance brought down from last month: Balance Na
Cash in hand 900
Cash at bank 2,300
2 Tiger put extra capital into the firm in cash 5,000 Cash Capital
3 Received a cheque from F. Chan 7,900 Bank F. Chan
5 Cash sales to Kwan was made in cash 1,450 Cash Sales
6 Withdrew cash from the bank for business use 400 Cash Bank
15 Paid rent in cash 820 Rent Cash
17 Paid a cheque to M. Kwan 9,300 M. Kwan Bank
18 Banked $800 of the cash held by the firm 800 Bank Cash
22 Received a cheque from T. Yan 1,980 Bank T. Yan
23 Cash sales was paid directly into the bank 310 Bank Sales
25 A cheque from T. Yan banked on November 22 was 1,700 T. Yan Bank
returned by the bank
27 Withdrew cash from bank for owner’s private use. 100 Drawings Bank

Debit side: Amount increase (asset) Credit side: Amount decrease (asset)
T. Tiger

Cash Book
Date Particulars Cash Bank Date Particulars Cash Bank
2022 $ $ 2022 $ $
Nov 1 Balance b/d 900 2300 Nov 6 Cash 400
2 Capital 5000 Rent 820
15
3 F. Chan 7900 17 M. Kwan 9300
5 Sales 1450 18 Bank 800
6 Bank 400 25 T. Yan 1700
18 Cash 800 27 Drawings 100
22 T. Yan 1980 30 Balance c/d (diff.) 1130 6790
23 Sales 310

2750 18290 2750 18290

Dec 1 Balance b/d 1130 6790

Do Q2.1 (p.84)

p.24
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.25

3. Special items

Contra entries (“C”)

- They are the double entries between __cash__ and _bank_.
- It is where both the debit entries and credit entries are shown in the cash book.
- A mark “_c_” will be recorded as reference.

Dishonoured cheque
- A cheque is received from a customer and paid into a bank. However, at a later date, it is found that the
customer’s bank does not pay the firm the amount due on the cheque.
- The cheque is therefore _dishonoured_.

Example:
Apr 1 Sold goods to Chan for $2,000 on credit (Dr. Chan_ Cr. _Sales_)
Apr 3 Cheque of $2,000 was received from Chan (Dr. _Bank_ Cr. _Chan_)
Apr 5 The cheque received on Apr 3 was dishonoured (Dr. _Chan_ Cr. _Bank_ )

Chan (Trade Debtor) Bank

2022 $ 2022 $ 2022 $ 2022 $
Apr 1 Sales 2,000 Apr 3 Bank 2000 Apr 3 Chan 2000 Apr 5 Chan 2000
5 Bank 2000

* The amount is still owed by Chan at the end of April was $2000.

Bank balance
(i) Debit balance / Favourable balance
Example:
Apr 1 Cash Sales of $100 was received in cheque
Apr 15 Electricity of $20 was paid by cheque

Bank Balance Sheet

2022 $ 2022 $ Non-current assets Capital
Apr 1 Sales 100 Apr 15 Electricity 20
30 Bal c/d 80 Current assets Current Liabilities
May 1 Bal b/d 80 Bank 80

(ii) Bank overdraft / unflavourable balance / credit balance

Example:
Apr 1 Cash sales of $100 was received in cheque
Apr 15 Electricity of $180 was paid by cheque

Bank Balance Sheet

2022 $ 2022 $ Non-current assets Capital
Apr 1 Sales 100 Apr 15 Electricity 180
30 Bal c/d 80 Current assets Current Liabilities
May 1 Bal b/d 80 Bank overdraft 80

* When the bank account is overdrawn (the amount of money withdrawn is greater than the amount of
money deposited),

p.25
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.26

Illustration 2
Write up a two-column cash book from the following details, and balance it off as at the end of the month
2022
March 1 Balance brought forward:
Cash $1,800 (Dr.)
Bank $3,060 (Cr.)
3 Cash purchases of $75 was paid by cheque.
6 Cash sales of $4,420 was made to Cheung in cash.
7 Banked $3,000of cash held by the firm
8 Bought $2,000 computer by cheque
9 Credit sales of $500 to Kitty
11 John paid the firm $2,100 in cash
14 $700 credit sales to Wong
15 Cheque of $500 was received from Kitty
17 Mandy lent the firm $5,000, paying by cheque
18 The cheque received from Kitty on March 15 was dishonoured by the bank
20 The owner took away $400 cash for his own use
22 Paid $800 insurance by cheque
23 Withdrew $500 cash from the bank
26 Wong paid the firm $700 cash to settle his account
28 Bank overdraft interest was charged at $20
31 It is the company’s policy to $1,200 cash float.

Cash Book
Date Cash Bank Date Cash Bank
2015 $ $ 2015 $ $
Mar 1 Balance b/d 1800 Mar1 Balance b/d 3060
Mar 6 Sales 4420 Mar3 Purchase 75
Mar 7 Cash 3000 Mar 7 Bank 3000
Mar11 John 2100 Mar8 Computer 2000
Mar15 Kitty 500 Mar18 Kitty 500
Mar17 Loan from Mandy 5000 Mar20 Drawings 400
Mar23 Bank 500 Mar22 Insurance 800
Mar26 Wong 700 Mar23 Cash 500
Mar 31 Cash 4920 Mar28 Bank Overdraft Interest 20
Mar 31 Bank (difference) 4920
Mar 31 Balance c/d 1200 6465
9520 13420 9520 13420
Apr 1 Balance b/d 1200 6465

p.26
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.27

➢ Types of Discounts

Types of Discounts

Trade discounts Cash Discounts

(NO entries should be made in the double (Entries are to be made in the books)
entry records.)
Trade discount is the amount deducted from - Cash discount is an allowance given to a
retail price (list price) customer for any payment before the specific
Discounts are given to the following type of date
customers - - Discounts are given by the supplier to
1. Customers who buy a few / a lot of goods encourage customer to pay the invoice within
from us the cash discounts period.
2. Customers who always / seldom buy from
us
3. The general public

Types of cash discounts

⚫ Discount allowed is an allowance __given to_
customers (i.e. trade debtors).
They are _expenses_ (revenue / expenses) in the
profit and loss account.
⚫ Discounts received is an allowance _provided to _
suppliers (i.e. trade creditors).
They are _revenue_ (revenue / expenses) in the
profit and loss account.

➢ Steps in recording cash / bank receipts and payments in three-column cash book:
1. Write up the cash book according to the source document.
 Receipts should be recorded on the debit side of the cash book (i.e.: Dr. Cash book)
 Payments should be recorded on the credit side (i.e.: Cr. Cash book)
2. (a1) Post each receipt to the credit side of the related account in the corresponding ledger every day when it
occurs. (i.e.: Cr. XX a/c)
(a2) Post each payment to the debit side of the related account in the corresponding ledger every day when it
occurs. (i.e.: Dr. XX a/c)
(b) For 3-column cash book post the monthly total of the discounts to the discount account in the general
ledger

p.27
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.28

Illustration 3 (Preparation of the three-column cash book and the corresponding ledgers)

- Posting
Classification
- Business Books of
Ledgers
- transactions original entry

2022 $
May 1 Balances brought down from April 30: Cash in hand 3,500
Cash at bank 1,300
Debtors’ accounts: H Kut 2,400
K Chen 5,600
Creditors’ accounts: W Au 4,400
S Long 1,000
2 Lee put extra capital of $5,000 into the bank account.
3 H Kut paid cash in full settlement of his account, having deducted a 4% cash discount
5 Settled S Long’s account in cash, after deducting a 4% cash discount
6 Withdrew $300 cash from the bank for business use
15 Paid rent for $500 in cash
17 Paid W Au by cheque in full settlement of his account, after deducting a 5% discount
18 Received commission of $1,250 by cheque
22 K Chen settled his account in full by cheque
23 Cash sales of $800 was paid directly into the bank
25 A cheque from K Chen deposited on May 22 was returned (dishonoured) by the bank
27 Lee withdrew cash of $300 for his private use.

Original Entry

Cash Book
Date Discount Cash Bank Date Discount Cash Bank
allowed received
$ $ $ $ $ $
May1 Balance b/d 3500 1300 May5 S Long 40 960
2 Capital 5000 6 Cash 300
3 H Kut 96 2304 15 Rent 500
6 Bank 300 17 W Au 220 4180
18 Commission income 1250 25 K Chen 5600
22 K Chen 5600 27 Drawing 300
23 Sales 800
31 Balance c/d 4344 3870
96 6104 13950 260 6104 13950

Double Entry - Ledger

Trade Receivable Ledger

H Kut K Chen
$ $ $ $
May 1 Bal b/d 2400 May 3 Discount 96 May 1 Bal b/d 5600 May 22 Bank 5600
allowed
May 3 Cash 2304 May 25 Bank 5600

p.28
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.29
Trade Payable Ledger

W Au S Long
$ $ $ $
May 17 Discount 220 May 1 Bal b/d 4400 May 5 Discount 40 May 1 Bal b/d 1000
Received Received
17 Bank 4180 5 Cash 960

General Ledger

Capital Rent
$ $
May 2 Bank 5000 May 15 cash 500

Commission income Sales

$ $
May18 Bank 1250 May 23 Bank 800

Drawings
$
May 27 Cash 300

Discount allowed Discount received

$ $
May 31 Total 96 May 31 Total 260

Do 2.2, 2.3x, 2.9, 2.10x, 2.14x

p.29
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.30

Exercise 1
Cindy is a sole proprietor who keeps records of her cash and bank transactions in a three-column cash book. The opening
balances in the cash book at 1 January 2016 were: Cash $4,580 and Bank overdraft $2,130. Cindy made
the following transactions in the month of January 2016:

2016
Jan 1 Cash sales were $6,000 made to Chan in cash
7 Deposited $3,000 cash into bank
9 Repairs of machinery of $250 was paid by cash
12 Credit sales to Mary and Leon were $1,000 and $7,200 respectively
14 Purchases on credit from Mandy amounted to $2,000
16 $80 cash was paid for water charge
20 Cash purchases were $1,800 made by cheque $50 trade discount was received
22 A cheque of $980 was received from Mary in full settlement of her account
24 Paid Mandy by cheque. $100 discounts was received
30 Received from Smart Ltd. $270 in cash to settle his account, whom was given a 10% cash
discount for prompt payment
31 Bought $1,000 goods by cheque

You are required to prepare:

(a) The three-column cash book of Cindy for the month of January 2016
(b) Show the discounts accounts in the general ledger

(a)
Cash Book
Discount Cash Bank Discount Cash Bank
allowed received
2016 $ $ $ 2016 $ $ $
Jan 1 Balance b/d 4,580 Jan 1 Balance b/d 2,130
Sales 6,000 7 Bank (c) 3,000
7 Cash (c) 3,000 9 Repairs 250
22 Mary 20 980 16 Water charge 80
30 Smart Ltd. 30 270 20 Purchases 1,800
31 Balance c/d 2,850 24 Mandy 100 1,900
31 Purchases 1,000
31 Balance c/d 7,520
50 10,850 6,830 100 10,850 6,830

(b)
General Ledger

Discount allowed Discount received

2016 $ 2016 $
Jan 31 Total 50 Jan 31 Total 100

p.30
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.31

Exercise 2
Sam is trading in the clothing industry. The transactions in March 2022 were shown as below:
2022
March 1 The cash account showed a debited balance $4,000 and the bank account showed an
unfavourable balance of $780
6 Sundry expenses of $980 were paid by cheque
7 Goods of $1,200 was purchased from C Tang on credit
10 Cash purchases was made with $50 discounts. A cheque of $450 was used to settle the
transaction
13 1/4 of the goods purchased from C Tang was returned
14 Goods with a list price of $10,000 were sold to M Chan on credit. 20% trade discount was
given to him. If he could settle the amount owed within 2 weeks, another 10% cash
discount would be allowed to him
15 Goods with a list price of $4,200 was sold to Leung with a cheque received. Trade discount
given was 10%
22 Paid C Tang for the purchase made on 7 March 2022 by a cheque of $720 to settle the
account in full
27 M Chan settled his account in cash
29 Interest of $35 was charged by the bank
31 Sam decided to keep $5,000 cash only. Any excessive held would be deposited into the
bank

For the month of March, you are required to:

a) Draw up a three-column cash book and balance it off at the end of the month
b) Prepare the discounts accounts in the general ledger
c) Show the account of C Tang in the trade payables ledger

(a)
Cash Book
Discount Cash Bank Discount Cash Bank
allowed received
2022 $ $ $ 2022 $ $ $
Mar 1 Balance b/d 4,000 Mar 1 Balance b/d 780
15 Sales 3,780 6 Sundry expenses 980
27 M Chan 800 7,200 10 Purchases 450
31 Cash 6,200 22 C Tang 180 720
29 Bank interest 35
31 Bank 6,200
31 Balance c/d 5,000 7,015
800 11,200 9,980 180 11,200 9,980

(b) General Ledger

Discount allowed Discount received
2022 $ 2022 $
Mar 31 Total 800 Mar 31 Total 180

(c) Trade payables ledger

C Tang
2022 $ 2022 $
Mar 13 Returns inwards 300 Mar 7 Purchases 1,200
22 Bank 720
22 Discount received 180

p.31
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.32

Hong Kong Chinese Women’s Club College

BAFS Accounting
Books of Original Entry and Ledgers: General Journal

Accounting Cycle
The records in the books of
original entry will next be
posted in the accounts by
Business transactions means of double entry.
are first recorded in the Preparing
books of original entry. adjusting
Balance off
entries
accounts

Keeping source
documents for Books of Original Trial Financial
business Entry Ledgers Statements
Balance
transactions
Income Statement
Source (includes nominal accounts)
Documents Classification Posting Balance Sheet
(providing (includes real accounts)
evidence of
transactions)
Trade Receivable Ledger (Debtors Ledger or Sales Ledger)
Purchases Purchases keep trade debtors’ accounts (personal accounts)
invoice Credit purchases Journal
Trade debtor - A Trade debtor - B Trade debtor - C

Sales Sales
invoice Credit sales Journal
Trade Payable Ledger (Creditors Ledger or Purchases Ledger)
keep trade creditors’ accounts (personal accounts)
Returns
Debit Trade creditor - A Trade creditor - B Trade creditor - C
Outwards
note
Returns outwards Journal

General Ledger
keep all other accounts (impersonal accounts)
Credit Returns
note Returns inwards Inwards
Journal Purchases Rent Furniture

Sales Returns inwards Returns outwards

Pay-in-slips Cash
Cheque Cash and bank Book*
counterfoil Receipts and payments
Capital Interest income Drawings

General
Invoice
Journal
Contracts Other transactions Other debtors Other creditors Motor van

Cash Book* Discount allowed Carriage inwards

*Cash Book serves the function of the books of original entry and ledger
as it includes the cash and bank accounts.

p.32
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.33

1. General Journal

The general journal or journal records all other items that do not fit into any of the other books of original entry.
The journal records the _double _ entries to be made in the ledger accounts.

Classification
Posting
Business Books of
transactions original entry Ledgers

Source documents:
It is kept as evidence
of transaction.

Invoice General
Contrac Journal
ts

The items that should be recorded in the (general) journal include:

(i) _Opening entries ______________________ - entries needed to open a new set of books

(ii) _Purchase of non-current assets on credit __________

(iii) _Disposal (sales) of non-current assets on credit____

(iv) _Returns of non-current assets bought on credit_____

(v) _Owners’ investment other than money____________

(vi) _Drawings of assets other than money_____________

(vii) _Settle debts with non-current assets_____________

(viii) _Closing entries_____________________________

p.33
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.34

Example (i): Opening entries

Miss So has opened her business for a few years, but she has not kept proper records in the books. On 1 March
2022, the assets and liabilities of the business were as follows:

Furniture $190,000, Inventory $10,000

Accounts receivable: Kwok $4,000, Mok $1,000
Accounts payable: Lee $5,000, Leung $2,000
Loan from Chan $10,000
Cash at bank $9,000, cash in hand $4,000

Required to prepare journal entries and ledger accounts to open the books of the business on 1 March 2022.

_Original_ Entry _Double_ Entry - Ledger

Journal
Date Dr. Cr. Furniture
$ $ $
Mar 1 Furniture 190000 Mar 1 Balance b/d 190000
Inventory 10000 Inventory
Kwok 4000 $
Mok 1000 Mar 1 Balance b/d 10000
Bank 9000 Kwok
Cash 4000 $
Lee 5000 Mar 1 Balance b/d 4000
Leung 2000 Mok
Loan from Chan 10000 $
Capital 201000 Mar 1 Balance b/d 1000
Bank
$
Mar 1 Balance b/d 9000
Cash
$
Mar 1 Balance b/d 4000
Lee
$
Mar 1 Balance b/d 5000
Leung
$
Mar 1 Balance b/d 2000
Loan from Chan
$
Mar 1 Balance b/d 10000
Capital
$
Mar 1 Balance b/d 201000

p.34
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.35

Example (ii): Acquisition of non-current assets on credit

On 4 March 2022, a motor van was bought on credit from the Honda Company for $220,000.

Required to prepare journal entries and ledger accounts to record the above.

__Original_ Entry _Double Entry - Ledger

Journal
Date Dr. Cr. Motor Van
2022 $ $ 2022 $
Mar 4 Motor Van 220000 Mar 4 Honda 220000
Company
Honda Company 220000 Honda Company
(Bought motor van 2022 $
on credit) Mar 4 Motor Van 220000

Example (iii): Returns of non-current assets bought or sold on credit

On 23 March 2022, office furniture previously bought for $4,900 was returned to Poon as it was not suitable.

Required to prepare journal entries and ledger accounts to record the above.

_Original_ Entry _Double_ Entry - Ledger

Journal
Date Dr. Cr. Office Furniture
2022 $ $ 2022 $
Mar 23 Poon 4900 Mar 23 Poon 4900
Office Furniture 4900 Poon
(Return office 2022 $
furniture to Poon) Mar 23 Office 4900
Furniture

Example (iv): Disposal of non-current assets on credit

On 11 March 2022, outdated computer equipment was sold on credit to Peter for $3.600.

Required to prepare journal entries and ledger accounts to record the above.

_ Original__ Entry _ Double_ Entry - Ledger

Journal
Date Dr. Cr. Computer Equipment
2022 $ $ 2022 $
Mar 11 Peter 3600 Mar 11 Peter 3600
Computer Equipment 3600 Peter
(Sold computer 2022 $
equipment on credit) Mar 11 Computer 3600
Equipment
p.35
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.36

Example (v): Settle debts with non-current assets

A debt of $2,000 owed by a customer, Chan, was settled by a machine on 16 March 2022.

Required to prepare journal entries and ledger accounts to record the above.

_ Original__ Entry _ Double__ Entry - Ledger

Journal
Date Dr. Cr. Chan
2022 $ $ 2022 $
Mar 16 Machine 2000 Mar 16 Machine 2000
Chan 2000 Machine
(Debt is settled by 2022 $
machine) Mar 16 Chan 2000

Example (vi): Contributions of capital other than money

On 24 March 2022, the owner contributed a delivery van valued at $22,000 and some goods worth $5,000.

Required to prepare journal entries and ledger accounts to record the above.

_ Original__ Entry __ Double__ Entry - Ledger

Journal
Date Dr. Cr. Delivery Van
2022 $ $ 2022 $
Mar Delivery Van 22000 Mar 24 Capital 22000
24
Inventory 5000 Inventory
Capital 27000 2022 $
(Contributed a Mar 24 Capital 5000
delivery van and some Capital
goods) 2022 $
Mar 24 Delivery Van 22000
24 Inventory 5000

p.36
 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.37
Example (vii): Drawings of assets other than money

On 11 March 2022, the owner took $3,900 worth of goods and a computer costing $3,000 out of the business for
private use.

Required to prepare journal entries and ledger accounts to record the above.

_ Original__ Entry __ Double__ Entry - Ledger

Journal
Date Dr. Cr. Purchases
2022 $ $ 2022 $
Mar 11 Drawings 6900 Mar 11 Drawings 3900
Purchases 3900 Computer Equipment
Computer 3000 2022 $
Equipment
(Took Mar 11 Drawings 3000
computer Drawings
equipment 2022 $
and Mar 11 Purchases 3900
inventory Computer 3000
for own use) Equipment

Example (viii): Closing entries (after trial balance)

Assume that the year end of a business is 31 March 2022.

(1) Close sales account, purchases account and opening inventory account
Prepare closing inventory account

Stock related accounts (e.g. sales, purchases, returns inwards, returns outwards, carriage
inwards, labour cost for packaging) are closed to Trading account (the first part of the Income
Statement).

On 31 December 2022, the following amounts were extracted:

Purchases $800
Sales $2,700
Inventory on 1 January 2022 $1,100

By stocktaking, the inventory on 31 December 2022 amounted to $650.

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.38
_ Original__ Entry __ Double__ Entry - Ledger

Journal
Date Dr. Cr. Opening inventory
2022 $ $ 2022 $ 2022 $
Dec 31 Trading account 1100 Dec 31 Balance c/d 1100 Dec 31 Trading 1100
Opening Inventory 1100
(Closed opening Closing inventory
inventory) 2022 $ 2022 $
Dec 31 Trading 650 Dec 31 Balance c/d 650
Trading account 800
Purchases 800 Purchase
(Closed purchases) 2022 $ 2022 $
Dec 31 Balance c/d 800 Dec 31 Trading 800
Sales 2700
Trading account 2700 Trading account for the year ended 31 December 2022
(Closed sales) 2022 $ 2022 $
Dec 31 Opening 1100 Dec 31 Sales 650
inventory
Closing inventory 650 Purchases 800
Trading account 650
(Close inventory
entries)

(2) Close expenses and revenue account

Revenue and expenses accounts (e.g. rent, interest received, discount allowed discount
received) are closed to Profit and Loss account (the second part of the Income Statement).

On 31 December 2022, the following amounts were extracted:

Rent and rates $4,800
Interest income $270

_ Original__ Entry __ Double__ Entry - Ledger

Journal
Date Dr. Cr. Rent and rates
2022 $ $ 2022 $ 2022 $
Dec 31 Profit and loss 4800 Dec 31 Balance c/d 4800 Dec 31 Profit and loss 4800
Rent and rates 4800
(Closed rent and rates) Interest income
2022 $ 2022 $
Interest income 270 Dec 31 Profit and 270 Dec 31 Balance c/d 270
loss
Profit and loss 270
(Closed interest Profit and loss account for the year ended 31 December 2022
income) 2022 $ 2022 $
Dec 31 Rent and 4800 Dec 31 Interest 4800
rates income

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.39
(3) Transfer the profit or loss and drawings to the capital account

Profit and loss account and drawings account are closed to Capital account.

On 31 December 2022, the following amounts were extracted:

Drawings $2,760

_ Original__ Entry ___ Double__ Entry - Ledger

Journal
Date Dr. Cr. Drawings
2022 $ $ 2022 $ 2022 $
Dec 31 Capital 2760 Dec 31 Balance c/d 2760 Dec 31 Capital 4800
Drawings 2760
(Closed drawings) Capital
2022 $ 2022 $
Profit and loss – net X Dec 31 Drawings 2760 Dec 31 Profit and X
profit loss – net
profit
Capital X
Profit and loss account – net profit for the year ended 31
December 2022
2022 $
Dec 31 Capital X

Exercises:
Q2.4 – Q2.8, Ex. 1 - 2
Q2.11, Q2.12, Q2.13x

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.40
General Journal exercises

1. The followings are the transactions for Mr. Lam for the month of December:

2022
Dec. 1 Mr. Lam acquired the whole business with the following assets and liabilities:
Freehold premises $12,000, office equipment $3,500, stock $900,
Debtors-Mr. Young $500 and Mr. Choi $600, bank $5,000 and
Creditors-Mr. Ko $300 and Mr. Au $900.

3 A motor van was bought on credit from Wong’s Co. for $4,000.

9 A debtor, Mr. Choi, offered a manual typewriter to Mr. Lam in full settlement of his
debt $600 because he was unable to pay his account in cash. The offer was accepted.

10 An electric typewriter in office was sold to Mr. Chow for $1,000 on credit.

15 Goods $200 purchased early this month was taken by Mr. Lam for his private use.

16 Mr. Lam returned goods $50 back into the stock.

20 A table $100, a goods in the warehouse, was taken for business use.

25 The electric typewriter, sold to Mr. Chow on 10 December, was found malfunctioning
and returned to us for full allowance.

Required to prepare journal entries for the above transactions.

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.41
1.
Journal
Date Dr. Cr.
2022 $ $
Dec 1 Freehold premises 12,000
Office equipment 3,500
Stock 900
Debtors – Mr. Young 500
- Mr. Choi 600
Bank 5,000
Creditors – Mr. Ko 300
- Mr. Au 900
Capital 21,300
Being assets and liabilities acquired this day.

3 Motor van 4,000

Wong’s Co. 4,000
Being motor van bought on credit

9 Office equipment 600

Mr. Choi 600
Being typewriter accepted in full settlement
of Mr. Choi’s debt.

10 Mr. Choi 1,000

Office equipment 1,000
Being office typewriter sold on credit

15 Drawings 200
Purchases 200
Being goods taken by the sole proprietor

16 Purchases 50
Drawings 50
Being goods returned by the proprietor

20 Furniture 100
Purchases 100
Being goods taken for business use.

25 Office equipment 1,000

Mr. Chow 1,000
Being office typewriter sold on 10 Dec.
returned by Mr. Chow

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.42

2. Show the journal entries which are necessary for recording the following transactions:

2022
Jan. 1 Mr. Chan, after being in business for some years without keeping proper records decided to
keep a double entry set of books. He set up that his assets and liabilities were as follows:
Motor vans $840, fixtures $700, stock $900,
Debtors-Mr. Young $95 and Mr. Shum $45, bank $800, cash $20
Creditors-Mr. Ko $129 and Mr. Wong $41.

5 A machine was bought on credit from Tai Chi for $500.

10 A motor van sold for $300 on credit to Caine Ltd.

12 Mr. Shum, a debtor, owed us $45 and was unable to pay his account in cash, but offered
fixtures in full settlement of the debt. The offer was accepted.

15 Mr. Wong, a creditor of $41, transferred his business to Mr. Ng to whom the debt was to be
paid.

20 Mr. Chan, the owner of the business, took $10 goods out of the business stock without
paying for them.

25 $5 of the goods taken by Mr. Chan on January 20 was returned back into the stock.

30 The machine bought on credit from Tai Chi was found to be unsuitable and Tai Chi allowed
us to return it for full allowance.

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 HKCWCC BAFS Accounting – Ch4, 5: Books of Original Entry and Ledgers, P.43
2.
Journal
Date Dr. Cr.
2022 $ $
Jan 1 Motor van 840
Fixtures 700
Stock 390
Debtors- Mr. Young 95
Mr. Shum 45
Bank 800
Cash 20
Creditors – Mr. Ko 129
- Mr. Wong 41
Capital 2,720
Being assets and liabilities acquired this day.

5 Machinery 500
Tai Chi 500
Being machinery bought on credit

10 Caine Ltd. 300

Motor van 300
Being motor van sold on credit

12 Fixtures 45
Debtor – Mr. Shum 45
Being acceptance of fixtures for settlement
of debt

15 Creditors – Mr. Wong 41

Creditors – Mr. Ng 41
Being transfer of debt

20 Drawings 10
Purchases 10
Being goods taken for the owner’s use

25 Purchases 5
Drawings 5
Being goods returned back by the owner

30 Tai Chi 500

Machinery 500
Being machinery retuned

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